Company Quarterly Earnings Update – QNS VN – 2019 Q2

Summary of the H1 2019 results of Quang Ngai Sugar JSC (QNS VN) 

H1/2019 results: highlights
  • Revenue increased by 2.5% y/y to VND4,072 bn. QNS’s main product lines developed in opposite directions: soymilk +13.0% y/y, whereas sugar -10.9% y/y.
  • QNS’ net profit declined by 6.5% to VND 520bn. Affecting factors were 1) higher overall gross margin thanks to the soy milk segment despite the lower margin of the sugar segment; 2) higher administration expenses due to increased overhead costs related to the development of the Refined-Extra/ RE Sugar factory; and 3) the higher corporate income tax rate as a tax incentive ended.
  • The company’s financial position remains solid with cash and deposits making up 26% of total assets, the and leverage was only moderate (D/E 0.18x and D/A 0.25x).
  • QNS’s main revenue and profit driver is its soy milk segment. This segment’s growth is supported by 1) conversion from unbranded to branded consumption; 2) QNS’s further penetration into the Southern Vietnamese market, the largest regional market in Vietnam but making up only 15% of QNS’s soy revenue.
  • The sugar segment, still a major revenue contributor, is much less significant in terms of profit contribution. In 2019, sugar (only Refined-Standard/RS) revenue is to decline by 40% (volume -30% because of unfavorable weather conditions, and price -10% as international sugar prices weakened). From 2020 onward, sugar revenue will benefit from QNS’s new RE production. We expect regional sugar prices to go up as Thailand removed some of its protection and plans to partially convert sugarcane to biochemical production items. The RE production is likely to benefit from Vietnam’s abolishment of sugar import quota and tariffs due to ASEAN Trade in Goods Agreement (ATIGA).
  • QNS’ net profit is estimated to decline by 9.7% in 2019, then +12.5% in 2020.

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